NAME: DAVIDBABATUNDE SULEMATRIC NUMBER: 179930TOPIC: ORIGINSPECIFIC DETERMINANTS OF IMPORTChapter one: study structure1.1 Statementof the ProblemIn2008 the global financial crisis hit the world, described as the worst crisissince the great depression. It is fair to say the financial crisis started fromthe united states of America where there was an increase in mortgage loanswhich people would later be unable to pay causing banks and mortgage companiesto suffer significant loss from these defaults, it was also in the us wherehouse prices firsts started to fall causing a negative wealth effect and aresulting reduction in spending. This crisis would then be carried on the backof the global stock market, the links between the banking sector and tradewhere other countries imported the crisis.
It follows as changes in onecountry’s output levels will affect income and aggregate demand of its tradingpartners, reducing aggregate demand with decrease in available imports pushingthe economy into recession especially if these imports are made up mainly ofinvestment or capacity creating goods. This recession according to Blanchardand Johnson (2013) is worsened if all the trading partners waiting on eachother to stimulate their individual economy and let the spill over stimulatethe others.Thisinternational transmission of domestic disturbances where import demandelasticity’s which is a crucial link between economies; and the degree to whichthe external balance constraint affects a country’s growth is not the onlypolicy implication for an investigation of the origin specific determinants ofimport another important issue is dumping which according to the NationalAcademy of Sciences is the “Dumping is the export of products at less than ‘normalvalue,’ often defined as the price at which those products are sold in the homemarket” leading to the adoption of anti-dumping policies by different countriesincluding Nigeria which according to www.vanguardngr.com (2018) anonline newspaper outlet has signed an agreement with King and Spalding, LLPGeneva, a Swiss law firm expected to support the drafting of Nigeria’s traderemedy law and prepare a legal brief on the rationale and requirements for thelegislation, which will effectively stop dumping on the Nigerian market.Although some observers call for the eradication of such anti-dumping policieswith claims that it increases efficiency and maximizes the gains from tradeothers argue that dumping itself remains a “problem in international trade” asdescribed by Jacob Viner in a seminal study he conducted in 1923 on thesubject. And as such requires continued regulation especially for countrieswith relatively open economies.
Dumping over the short run allows firms in theorigin markets enjoy lower average cost by allowing them operate at higherlevels of capacity utilization but firms in the destination markets if theorigin markets are closed to them, like in the case that their products don’tmatch the markets demand patterns and they aren’t able to find demand for theirgoods as is the case of trade between most African countries and European orAmerican economies where we find that we have nothing to sell to them mosttimes conversely dumping over longer runs works to discourage investment in thedestination economies for the origin economies because the risks and returnsattached to investment are higher and lower respectively in the destinationeconomies than in the origin economies. The combinations of these effects workto erode industries in the destination economies even till the point that theycompletely disappear for reasons unrelated to their competitiveness. In part,this led to the adoption of economic reform programmes expected to affectimports, in part to restore external balance. According to Moran (1989),however, this policy decision reveals the role played by foreign exchangeavailability in the growth process and is positively harmful to investment andoutput in developing countries. Perhaps, this is a demonstration of thereliance on imports for domestic production making an investigation of theorigin specific determinants of imports all the more important to identifiedthe markets upon which the Nigerian economy is most dependent and changes inwhich have the most impact on the Nigerian economy. As a developing economy,Nigeria has had her own share of high nominal value of aggregate import overthe years. This has been the order since independence in 1960, and has beenmade worse by the oil booms of the 1970s that gave rise to an increase inaverage income, and subsequently increase in the demand for import.
Availableevidence generally suggests that most developing countries such as Nigeriaregistered a persistent decline in their foreign exchange earnings from theearly 1980s. This is attributed largely to the collapse of commodity prices inthe world market as a result of increased import. Thus, it was not surprisingthat the collapse of commodity export prices in the early 1980s engenderedfiscal crises in most African countries, as reflected in their huge budgetdeficits. 1.
2 ResearchQuestions and obejectives of the studyThestudy will address the following research questions:1. Isthere any significant impact of the determinants of import demand function forimports in Nigeria from its major trading partners?2. Dolong-run relationships exist between the determinants of import demand functionin Nigeria?Inthe attempt to provide answers to these questions, the broad objective of thestudy will be to investigate the determinants of Nigeria’s import demand basedon the origins of these imports as well as ascertain the variables thatdetermine Nigeria’s import demand. The specific objective includes;1.
Identifyvariables that determine the demand for imports in Nigeria based on the sourcesof these imports.2. Analyzethe behaviour of imports in Nigeria based on their origin.3. Estimatethe import demand function for each of its trading partners.4.
Determinepolicies for Nigeria to reduce its chronic trade deficit and dependency onother economies of the world.1.3 Hypothesisof the Study· H0:There is no difference in the factors that determine import demand based on itscountry of origin.· H0:There is a negative relationship between gross domestic product and importsfrom Nigeria’s largest partners.
· H0:There is positive relationship between exchange rate and demand for imports inall cases.· H0Thereis a positive relationship between CPI and demand for imports in all cases.1.4 MethodologyThisresearch will analyze the behaviour of the aggregate import demand function forNigeria using time series techniques, descriptive analysis methodology will beused, and the collected data will be analyzed by SPSS & Eviews. The studycovers the period 1991-2015. The data at 2000 constant prices are obtained fromthe national bureau of Statistics all the data for the three independentvariables and the dependent variables from the OECD.1.
4.1 Datacollection and Variables1.4.1.
1 Secondary resources: theresearcher has utilized the relevant literature and publications related to thesubject of the research. (Reports, Thesis, Conference reports, Governmental,Newspapers, Journals, & Internet).1.4.1.
2.1 DependentVariablesImport demand for each ofNigeria’s major trading partners.22.214.171.124.
2 IndependentVariablesGross domestic product (GDP).Exchange Rate(ER). (Naira onDollar)Consumer Price Index (CPI). 1.5 Significanceof StudySinceimport is all about increasing the availability of needed goods and services ofany country. But in a country like Nigeria where import as advantageous as itis could be comes with negative effects like dumping.
This work will be ofgreat importance to the general public, the government and its agencies.Also,it will be of great importance to the ministry of foreign affairs, ministry offinance as well as schools. Above all, it will be a foundation for theeconomist, students and researchers who have interest on import demand andranking Nigeria’s major trading partners on a basis of profitability of therelationship of the relationship.
1.6 Scopeand limitation of the studyThisresearch will empirically evaluate the import demand function on Nigerianeconomy and its main trading partners for the period of (1991 — 2015). Theresearcher may encounter a number of constraints in the course of this work toinclude; data sourcing or data inconsistency due to poor nature of informationmanagement in Nigeria.
Other constraints are; time factor, financialconstraints and hosts of other constraints that prevent the researcher topresent a better work than this. References· OlivierBlanchard and David R. Johnson – macroeconomics 2013 6th edition p.407-408.
· InternationalFriction and Cooperation in High-Technology Development and Trade: Papers andProceedings. – DUMPING: STILL A PROBLEM IN INTERNATIONAL TRADE· https://www.vanguardngr.com/2018/01/nigeria-signs-legal-agreement-tackle-dumping-products/- Nigeriasigns legal agreement to tackle dumping of products· ChristianMoran – Imports under a foreign exchange constraint, 1989 Chapter two: Literature reviewWhilethere has been an exhaustive list of studies that have come before throughoutthe world to explain the topic of the import demand function. Even in Nigeriawhere a notable number of academicians have attempted to tackle the problem.There to the best of the researcher’s knowledge still remains a vacuum instudying the matter specifically based on the origins of these imports and hecould only find studies on import as broad aggregates. Howeverthis research will address the available literature as a group of Nigerian,African and international studies that provide context for the work inchronological order2.1 Nigerianstudies:2.
1.1 (Ozo-Eson& Peter 1984). “(Determinants of import demand in Nigeria: a monetaryapproach)”.Inthis paper, a straightforward monetarist model of import demand in Nigeria iscreated and tried observationally. Based on the outcomes, the significantfinding is that disequilibrium in the money market assumes a noteworthy part indeciding the level of import demand. In light of this discovering, it isexhibited that before import demand models that don’t account for money willtend to deliver one-sided appraisals of the Keynesian elasticity of importdemand. Finally, the suitable setting for policy formulation and analysis isinferred. The appropriate policy response is that the suitable approachreaction to expanding import demand is the reduction in domestic money supply.
2.1.2 (Nyatepe-Coo, Akorlie A., 2006).
“(Dutch Disease, government policy andimport demand in Nigeria)”.Theimpacts of sectoral changes and government approaches on import demand inNigeria are examined, with regards to the oil shocks of the 1980s. A two-equationmodel is evaluated to determine real import demand and the real exchange rate.
The outcomes show that import demand expanded altogether in light of the blastinduced crush on the agricultural sector. Besides, by inducing and supportingreal exchange rate overvaluation, expansionary government policy added tohigher import demand, even after the fall in oil costs.2.1.3 (M. Adetunji Babatunde & Festus O. Egwaikhide, 2010). “(Explaining Nigeria’simport demand behaviour: a bound testing approach, International Journal ofDevelopment Issues, Vol.
9 Issue: 2, pp.167-187).”This paper presents an empirical analysis of the aggregated importdemand behavior for Nigeria using annual data between 1980 and 2006 and thebounds test in estimating the long run relationship between imports and itsdeterminants.The test results show that imports, income and relative prices arecointegrated. The estimated long?run elasticities of import demand with respectto income and relative prices are 2.48 and ?0.
133, respectively. These resultssuggest that the Marshall?Lerner conditions are not satisfied for Nigeria.2.1.4 (Adeolu O.
Adewuyi, 2016). “(Determinants of import demand fornon-renewable energy (petroleum) products: Empirical evidence from Nigeria).”This study assessed determinants of importdemand for refined oil based goods in Nigeria for the period 1984– 2013. Itutilized the autoregressive appropriated slack (ARDL) limits test cointegrationtechnique and dissected both long-run and short-run determinants of importdemand for aggregate and particular oil based commodities.
Over the long run, total and sectoral incomesare huge determinants of import of refined kerosene. Further, real effectiveexchange rate (REER), aggregate income (GDP), manufacturing sector income, domesticenergy production (DEP) and population growth rate (PGR) are drivers of importof refined motor spirit. Moreover, REER, DEP and manufacturing sector’s salaryare propellers of import of refined distillate fuel. Additionally, REER andaggregate output of oil based goods are significant drivers of aggregate importof refined oil based commodities. Short-run come about demonstrate that pastperiod GDP, PGR and manufacturing and services sectors’ incomes aredeterminants of import demand for refined kerosene. Additionally, REER, GDP,past PGR and manufacturing sector salary apply huge impacts on the import ofrefined motor spirit. Further, critical impacts of REER, DEP, past PGR,residential yield of the item and assembling and administration divisions’earnings on the import demand for distillate fuel were found.
2.2 African studies:2.2.1 (Fosu and Magnus, 2008),”(Aggregate Import Demand and Expenditure Components in Ghana)”.The conduct of Ghana’s imports amid the period1970-2002 was contemplated utilizing disaggregated expenditure parts ofaggregate national income. It utilized recently created bounds testing approachto co-integration and assessed an error correction model to isolate theshort-and long-run components of the import demand relationship. Theexamination uncovered inelastic import demand for all the expenditure segmentsand relative cost. In this investigation it has utilized the ARDL boundstesting approach to co-integration to inspect the connection betweenexpenditure segments, relative cost and total import demand in Ghana.
Itdiscovered long-run connections relation among the variables and utilized it toassess both long and short run disaggregated import demand display for Ghana. The examination finds that inelastic andpositive relationship exist between the three expenditure components and totalimport demand. Relative cost is likewise inelastic however adversely affecttotal demand.
The short run outcomes fits the present circumstance in Ghana andso far as that is concerned numerous African nations as these nations areunmistakably exceptionally dependent on imports particularly for consumptionand investment goods to make up for short falls in local production.2.2.2 (Emmanuel Ziramba, 2010).”(Price and income elasticities of crude oil import demand in South Africa: Acointegration analysis)”.This paper looks at the demand for imported crudeoil in South Africa as a component of real income and the cost of unrefinedpetroleum over the period 1980– 2006. The Johansen co-integration multivariateexamination was conducted to determine the long-run income and priceflexibilities. A unique long-run cointegration relationship exists betweencrude oil imports and the explanatory variables.
The short-run dynamics areassessed by indicating a general error correction model. The evaluated long-runprice and income elasticities of ?0.147 and 0.429 suggests that import demandfor crude oil is price and income inelastic.
There is additionally confirmationof unidirectional long-run causality running from real GDP to unrefinedpetroleum imports.2.2.
3 (Constant, 2010), “(AnEconometric Estimation of Import Demand Function for Cote D’Ivoire)”.This investigation evaluated the import demandwork for Cote d’Ivoire By utilizing the as of late created co-integrationprocedure the bounds testing way to deal with test the long run connectionbetween imports, relative import prices, final utilization expenditure,investment expenditure and export expenditure utilizing yearly information forthe period 1970 – 2007.We discover proof of a co-integration relationship amongthe variabless in the import demand function when import demand, finalutilization expenditure and relative prices are the dependent variable. Howeverin light of the model determinations we used import demand as dependentvariable. This enables us to analyze the long run elasticities yet additionallythe short run of Cote d’Ivoire import demand for policy implications. We findthat an inelastic and positive relationship exist between the final utilizationexpenditure, the expenditure on investment and goods and the expenditure onexports. Relative price is likewise inelastic however contrarily affect totaldemand suggesting that the import demand is insensitive to increment in locallevels. Subsequently the Cote d’Ivoire policymakers need to bargain intimatelywith the aggressiveness of the relative prices to boost growth and developmentof the local industries2.
2.4(Simon Harvey & Kordzo Sedegah, 2011).”(Import Demand in Ghana:Structure Behaviour and Stability)”.This examination investigates the structure of, andmodel demand for imports into Ghana utilizing time arrangement information from1967 to 2004. Likewise, it evaluates the long-run and short-run elasticities oftotal imports and their parts, and decides if the import demand function hasmoved amid the period under thought because of exchange progression.
Cointegration and error correction models are utilized to appraise parsimoniousmodels for total imports and three different classes. The outcomes demonstratethat domestic income, foreign exchange reserves and liberalization all assumehuge parts both in the short-run and long-run import demand levels in Ghana. Welikewise find that there is general parameter soundness in the import demandfunctions over the examination time frame.
In this manner, policy makers who gofor lessening imports to redress adjust balance of payments irregularcharacteristics over the long haul should concentrate their endeavors onapproaches that will build the per capita income at the macroeconomic level andexecute strategies that will guarantee an even appropriation of per capitaincome to decrease poverty.2.2.5 (N. Emmanuel Tambi, 1998) “(Tradeliberalization effects on commodity imports in Cameroon, Journal of EconomicStudies, Vol. 25 Issue: 3, pp.
193-202)”.The speculations that an expansion in relative priceelasticities isn’t related with expanded import substitution and that anexpansion in income and foreign exchange elasticities isn’t related with a morenoteworthy level of “openness” of the Cameroon economy are exploredutilizing cointegration and error correction modelling. Disaggregation ofaggregate imports into raw materials, consumer, intermediate and capital goodsdemonstrates that long-run relative price elasticities of import demand are moreprominent than short-run esteems, being above unity for raw materials andconsumer products; subsequently prompting dismissal of the primary speculationfor these classifications of imports. Imports are income flexible for capitaland intermediate goods and outside trade inelastic for all classes of import,inferring that the Cameroon economy has been less open to trade in general.2.
3 International studies2.3.1 (Khwaja Sarmad, 1989). “(The determinants of import demand inPakistan)”.Thispaper looks at the variables affecting the demand for Pakistan’s imports amidthe period from 1959– 1960 to 1985– 1986.
A general approach is utilized todecide exactly the appropriate formulation of the import demand functions, andprompts the decision of the loglinear form. The assessed price and incomeelasticities are particularly not quite the same as those of the developed andmiddle income nations.2.3.2 (Dipendra Sinha, 2006).
“(Determinants of Import Demand inThailand)”.Thisexamination evaluates a total import demand function for Thailand. The priorinvestigations on import demand in light of time series data did not manage theissue of stationarity of the time arrangement before estimation. Utilizing thecointegration approach, we discover total import demand for Thailand to beproce inelastic, cross price inelastic (concerning domestic price) and incomeinelastic in the short run. Over the long run, total import demand is still priceinelastic and cross price inelastic. In any case, total import demand isexceptionally income elastic in the long run.